EADS Gets Cool Lawmaker Response After Explaining BAE Merger

EADS needs to convince governments to back a combination that would diminish their future role, as CEO Tom Enders seeks to build a company unrestrained from political meddling. Photographer: Michele Tantussi/Bloomberg

Sept. 26 (Bloomberg) -- European Aeronautic, Defence &
Space Co. Chief Executive Officer Tom Enders struggled to quell
skepticism from German lawmakers about his merger plan with BAE
Systems Plc that would clip government say in the new group.

Enders, appearing before a parliamentary hearing in Berlin,
laid out the proposed combination in a closed meeting that
lasted about 1 1/2 hours. The executive wasn’t clear on the
benefits of the merger and “contradictory” on what should be
done with special shares for governments, Kerstin Andreae, a
Green Party lawmaker and deputy head of the Economic Affairs
Committee in parliament, said after the hearing.

EADS needs to convince governments to back a combination
that would diminish their future role, as Enders seeks to build
a company unrestrained from political meddling. German Deputy
Economy Minister Hans-Joachim Otto told the committee that it’s
“not just a question of how but whether” the merger should
take place, underscoring the political resistance to the plan.

“We want to create a company that is even more successful
internationally and attracts investors,” Enders said after the
meeting. “There are lots of examples in this industry of
companies that don’t have to be influenced by politics.”

Questions Remain

There will be no backing of the merger from Germany without
additional clarification, Otto said, who acknowledged that too
much political influence has harmed EADS and that a merger would
give management more room to maneuver. Still, questions remain
regarding the plan, including the valuation of the companies in
the merged entity, he said after the hearing.

Some German lawmakers have questioned a ratio that would
give EADS 60 percent of the future company and BAE the rest,
saying it doesn’t adequately reflect the value of either
company. EADS is more than twice as large as BAE by revenue.

Enders dismissed the criticism over the valuation, saying
the ratio wasn’t “simply hatched over a beer” and that it was
carefully composed in concert with advisers. He said he had a
“good discussion” with lawmakers in the meeting and that
Toulouse, France-based EADS is ready anytime to follow up with
the government and explain the merger rationale.

EADS and BAE announced on Sept. 12 that they are exploring
a combination, which would create the largest aerospace and
defense company in the world, with a market value of $45
billion. Enders would probably retain his role in the enlarged
group, while the defense assets would be bundled in the U.K.

Unlike France, which owns 15 percent of EADS, Germany holds
no major stake, and the country’s industrial interests are
represented by Daimler AG, which controls 22.5 percent of EADS.
German politicians have said they’re wary of future job
guarantees, proposed synergies, and Germany’s role in the future
company, which would have headquarters in France and the U.K.